AN AVALANCHE IS COMING

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1 AN AVALANCHE IS COMING HIGHER EDUCATION AND THE REVOLUTION AHEAD ESSAY Michael Barber Katelyn Donnelly Saad Rizvi Foreword by Lawrence Summers, President Emeritus, Harvard University March 2013 IPPR 2013 Institute for Public Policy Research

2 AN AVALANCHE IS COMING Higher education and the revolution ahead Michael Barber, Katelyn Donnelly, Saad Rizvi March 2013 It s tragic because, by my reading, should we fail to radically change our approach to education, the same cohort we re attempting to protect could find that their entire future is scuttled by our timidity. David Puttnam Speech at Massachusetts Institute of Technology, June 2012 i

3 ABOUT THE AUTHORS Sir Michael Barber is the chief education advisor at Pearson, leading Pearson s worldwide programme of research into education policy and the impact of its products and services on learner outcomes. He chairs the Pearson Affordable Learning Fund, which aims to extend educational opportunity for the children of low-income families in the developing world. Michael also advises governments and development agencies on education strategy, effective governance and delivery. Prior to Pearson, he was head of McKinsey s global education practice. He previously served the UK government as head of the Prime Minister s Delivery Unit ( ) and as chief adviser to the secretary of state for education on school standards ( ). Micheal is a visiting professor at the Higher School of Economics in Moscow and author of numerous books including Instruction to Deliver: Fighting to Improve Britain s Public Services (2007) which was described by the Financial Times as one of the best books about British government for many years. Katelyn Donnelly is an executive director at Pearson where she leads the Affordable Learning Fund, a venture fund that invests in early-stage companies serving low-cost schools and services to schools and learners in the developing world. Katelyn is also an active advisor on Pearson s global strategy, research and innovation agenda, as well as a consultant to governments on education system transformation and delivery. She serves as a non-executive director and strategic advisor for several start-up companies across Europe, Asia and Africa. Previously Katelyn was a consultant at McKinsey and Company and graduated from Duke University with high distinction in economics. Saad Rizvi is Pearson s executive director of efficacy, leading a global team to ensure delivery of learning outcomes and performance across all the company s products, services, investments and acquisitions. Previously he was at McKinsey and Company, where he led innovation and strategy work for several Fortune 100 companies. Saad has advised education systems in Asia, Europe, Africa and North America on delivery, reform and systemic innovation. He graduated with distinction from Yale University with degrees in economics and international studies, and currently serves as a non-executive director at a number of companies in the education and technology spaces. ACKNOWLEDGMENTS We are grateful to Steve Smith, Jonathan Clifton, David Lefevre, Rohan Silva, Charles Stone, Raheel Ahmed and Prabhu Subramanian for giving their time, thought and input to this essay. We also received comments and advice from our Pearson colleagues Simon Breakspear, Louis Coiffait, Mark Cunnington, Philippa Duffy, Rachel Eisenberg, Charles Goldsmith and Brendan O Grady. We are particularly grateful for the persistence and thoughts of Vaithegi Vasanthakumar and Tanya Kreisky on all the countless drafts. Needless to say we take full responsibility for any errors that remain. ABOUT IPPR IPPR, the Institute for Public Policy Research, is the UK s leading progressive thinktank. We produce rigorous research and innovative policy ideas for a fair, democratic and sustainable world. We are open and independent in how we work, and with offices in London and the North of England, IPPR spans a full range of local and national policy debates. Our international partnerships extend IPPR s influence and reputation across the world. IPPR 4th Floor 14 Buckingham Street London WC2N 6DF T: +44 (0) E: Registered charity no March The contents and opinions expressed in this paper are those of the authors only. ii IPPR An avalanche is coming: Higher education and the revolution ahead

4 CONTENTS Foreword: Lawrence Summers...1 Preface: Michael Barber, Katelyn Donnelly, Saad Rizvi...3 Executive summary...5 The starting point Under the surface The global economy is changing The global economy is suffering The cost of higher education is increasing faster than inflation Meanwhile, the value of a degree is falling Content is ubiquitous The competition is heating up The components of the successful 20th-century university...22 Outputs...24 People...26 The programme...29 The experience Unbundling, or the new competition Research Degrees City prosperity Faculty Students Governance and administration Curriculum Teaching and learning...43 iii

5 9. Assessment Experience Seizing the future Relevance is not everything Distinctiveness matters It s hard to please all of the students all of the time Much of the value added won t be content Close the theory/practice gap The three- or four-year, full-time degree course is no longer standard Relationships with the city or region are becoming increasingly important As the monopoly over awarding degrees breaks down, universities need to consider their true value...54 New models Implications...61 Government...61 Universities...62 Businesses and organisations...63 Entrepreneurs...64 Students The aftermath...67 Bibliography...68 iv IPPR An avalanche is coming: Higher education and the revolution ahead

6 FOREWORD LAWRENCE SUMMERS An Avalanche is Coming sets out vividly the challenges ahead for higher education, not just in the US or UK but around the world. Just as we ve seen the forces of technology and globalisation transform sectors such as media and communications or banking and finance over the last two decades, these forces may now transform higher education. The solid classical buildings of great universities may look permanent but the storms of change now threaten them. Of course, competition between universities around the world has been intensifying for decades, and now they fight for talent and research funding. In An Avalanche, the authors argue that a new phase of competitive intensity is emerging as the concept of the traditional university itself comes under pressure and the various functions it serves are unbundled and increasingly supplied, perhaps better, by providers that are not universities at all. Thinktanks conduct research, private providers offer degrees, Thiel Fellowships have more prestige than top university qualifications, and Massive Open Online Courses (MOOCs) can take the best instructors global. Choosing among these resources and combining them as appropriate, many of those served by traditional universities may be able to better serve their objectives. At the same time, the changes outlined by the authors are opening up access to quality higher education to the masses in previously unforeseen ways. Until recently, a select few people could get the opportunity to benefit from elite institutions. Just this year I met a 12-year-old girl from Pakistan who had been teaching herself universitylevel physics online using course materials from Stanford. As I write this, the introductory biology course from MIT, taught by leading researcher Eric Lander, is about to be made available free around the world. The fundamental question in An Avalanche is Coming is whether a university education is a good preparation for working life and citizenship in the 21st century or, more precisely, whether it will continue to be seen as good value, given the remorseless rise in the cost of a university education over recent decades. For students, the question is immediate and challenging given the growing anxiety around the world about youth unemployment, even among college graduates. For policymakers, all kinds of new challenges are raised: how to promote meritocracy; how to 1

7 regulate a sector that used to be national and is increasingly becoming global; how to ensure universities of the right sort combine with great cities to fuel innovation and economic growth; and how to break the rigid link at least in people s perceptions between cost and quality. For university leaders, the questions are more profound still. The authors argue that the obvious strategy steady as she goes is doomed to fail; the one thing you don t do in the path of an avalanche is stand still! But what should you do? Does the curriculum need complete overhaul? What are the right models of teaching and learning now that the traditional lecture seems obsolete? Which students should be targeted? What global allowances will be necessary? The authors of An Avalanche is Coming don t answer these questions definitively but they most certainly put them on the agenda. Furthermore, Michael Barber s argument about unbundling needs to be studied and acted on by university leaders around the world. Those involved in thinking through the prospects for university education in the 21st century will find much to interest and provoke them here. Certainly there are challenges ahead, but surely also opportunities for those bold enough to seize them. The potential unbundling is a certainly a threat, but those who rebundle well will find they have reinvented higher education for the 21st century. Lawrence Summers Charles W Eliot University Professor and President Emeritus, Harvard University 2 IPPR An avalanche is coming: Higher education and the revolution ahead

8 PREFACE MICHAEL BARBER, KATELYN DONNELLY, SAAD RIZVI The motivation for An Avalanche is Coming, as it was for Oceans of Innovation, published last year, is a desire to see our education systems and institutions prepare present and future generations to seize the opportunities of the 21st century and overcome its many challenges. Our belief is that deep, radical and urgent transformation is required in higher education as much as it is in school systems. Our fear is that, perhaps as a result of complacency, caution or anxiety, or a combination of all three, the pace of change is too slow and the nature of change too incremental. We agree with David Puttnam who argued that: [I]t s tragic because, by my reading, should we fail to radically change our approach to education, the same cohort we re attempting to protect could find that their entire future is scuttled by our timidity. Speech at Massachusetts Institute of Technology, June 2012 Given the state of the global economy, tensions in international relations, massive gaps between wealth and poverty, the deepening threat of climate change and the ubiquity of weapons of mass destruction, our contention is that we need a generation better educated, in the broadest and most profound sense of that word, than ever before. We need as the London 2012 Olympics promised an inspired generation, all of whom are well-educated and some of whom are able to provide the bold, sophisticated leadership that the 21st century demands. We need citizens ready to take personal responsibility both for themselves and for the world around them: citizens who have, and seize, the opportunity to learn and relearn throughout their lives. We need citizens who are ready and able to take their knowledge of the best that has been thought and said and done and apply it to the problems of the present and the future. This surely should be the mission of universities, and here in An Avalanche is Coming we have sought to describe the threat posed to traditional 20th century universities if key institutions don t change radically, as well as the huge opportunities open to them if they do. The avalanche metaphor is appropriate because the one certainty for anyone in the path of an avalanche is that standing still is not an option. Indeed, 3

9 it is a classic error of strategy to calculate the risks of action but fail to calculate the (often greater) risks of doing nothing. As will become clear in the course of this paper, we see many possibilities but are by no means certain what the way forward is because there is no single way forward. Instead, what we will probably see is a diverse range of experiments, some of which will work and some of which won t. Our central message to leaders of universities and those who shape and regulate education is, in the words of the old hymn, to ponder anew. The certainties of the past are no longer certainties. The models of higher education that marched triumphantly across the globe in the second half of the 20th century are broken. Just as globalisation and technology have transformed other huge sectors of the economy in the past 20 years, in the next 20 years universities face transformation. We aim here to provoke creative dialogue and challenge complacency. We have not attempted to be comprehensive in our examination, but instead this paper will be more like an impressionist painting which has its emphasis on the bigger picture rather than on the detail. As with Oceans of Innovation, the writing of this essay has involved continuing intergenerational dialogue. Michael, a product of 20th-century education (in the 1960s and 70s) has found many of his assumptions questioned and sometimes overthrown. Saad and Katelyn (products of turn-of-the-century education) have come to recognise that some aspects of the good, the true and the beautiful are timeless. In any case, our collaboration has confirmed our view that intergenerational dialogue is a spur to creativity. In an ironic comment on our own argument, we each found ourselves taking pride in the university we attended. Whenever Katelyn inserted an example from Duke, Saad responded with one from Yale. But we hope we have written something that will help all those responsible for universities to consider their options creatively. Michael Barber Katelyn Donnelly Saad Rizvi March IPPR An avalanche is coming: Higher education and the revolution ahead

10 EXECUTIVE SUMMARY An Avalanche is Coming argues that the next 50 years could see a golden age for higher education, but only if all the players in the system, from students to governments, seize the initiative and act ambitiously. If not, an avalanche of change will sweep the system away. Deep, radical and urgent transformation is required in higher education. The biggest risk is that as a result of complacency, caution or anxiety the pace of change is too slow and the nature of change is too incremental. The models of higher education that marched triumphantly across the globe in the second half of the 20th century are broken. This report challenges every player in the system to act boldly. Citizens need to seize the opportunity to learn and re-learn throughout their lives. They need to be ready to take personal responsibility both for themselves and the world around them. Every citizen is a potential student and a potential creator of employment. University leaders need to take control of their own destiny and seize the opportunities open to them through technology Massive Open Online Courses (MOOCs) for example to provide broader, deeper and more exciting education. Leaders will need to have a keen eye toward creating value for their students. Each university needs to be clear which niches or market segments it wants to serve and how. The traditional multipurpose university with a combination of a range of degrees and a modestly effective research programme has had its day. The traditional university is being unbundled. Some will need to specialise in teaching alone and move away from the traditional lecture to the multi-faced teaching possibilities now available: the elite university the mass university the niche university the local university the lifelong learning mechanism. 5

11 The pressure of competition on universities is greater than ever, not just because of the global competition between them, but also because a range of new players like MOOCs provider Coursera, skill-educator General Assembly and consultancies that develop people and produce cutting edge research, are now stepping up to compete with various specific functions of a traditional university. Governments will need to rethink their regulatory regimes which were designed for a new era when university systems were national rather than global. In the new era, governments need to face up to big questions how can they fund and support part-time students? Should a student who takes courses from a range of providers, including MOOCs, receive funding on the same basis as any other student? How can government incentivise the connection between universities, cities and innovation? In an era of globalisation how do governments ensure that universities in their country continue to thrive? How can meritocracy be ensured? There are three fundamental challenges facing systems all round the world: 1. How can universities and new providers ensure education for employability? A great example of the future is the excellent employability centre at Exeter University in the UK which offers all students sustained advice and promotes volunteering as well as academic success. Given the rising cost of degrees, the threat to the market value of degrees and the sheer scale of both economic change and unemployment, this is a vital and immediate challenge. 2. How can the link between cost and quality be broken? At present, the global rankings of universities in effect equate inputs with output. Only universities which have built up vast research capacity and low student:teacher ratios can come out on top. Yet in the era of modern technology, when students can individually and collectively create knowledge themselves, outstanding quality without high fixed costs is both plausible and desirable. New entrants are effectively barred from entry. A new university ranking is required. 3. How does the entire learning ecosystem need to change to support alternative providers and the future of work? A new breed of learning providers is emerging that emphasise learning by practice and mentorship. Systematic changes are necessary to embedding these successful companies on a wider scale. The key messages from the report to every player in the system are that the new student consumer is king and standing still is not an option. Embracing the new opportunities set out here may be the only way to avoid the avalanche that is coming. 6 IPPR An avalanche is coming: Higher education and the revolution ahead

12 THE STARTING POINT THE STARTING POINT IS A SNOW-COVERED MOUNTAINSIDE THAT LOOKS SOLID. Nothing looked more impervious to revolutionary change than Brezhnev s Soviet Union in 1980, yet just over a decade later it was gone. The hegemony of the Catholic Church in Ireland looked unshakable in 1990, but two decades later it was gone. Lehman Brothers seemed a good option for top graduates in Just a year later, it too was gone. Norman Davies, the esteemed and often controversial historian, was interviewed recently in the FT, and explained historical change this way: Historical change is like an avalanche. The starting point is a snow-covered mountainside that looks solid. All changes take place under the surface and are rather invisible. But something is coming. What is impossible is to say when. 1 In the Soviet Union, in the Catholic Church in Ireland and in Lehman Brothers, it is possible, with hindsight, to see the harbingers of disaster ahead. There were even people at the time in all three cases pointing out problems and questioning strategy and direction, but they weren t heard. Right now, nothing looks more solid, more like that snow-covered mountainside, than the traditional university. Look at the classical architecture, the Doric columns on the campuses of Yale or Harvard, or the even older college buildings in Oxford or Cambridge. Look at the building boom in universities across the world, with the spectacular new laboratories, libraries and living accommodation constructed in the past two decades. Look at the data on the extraordinary expansion of research in the past 30 years as governments and businesses have understood its importance to future economic growth. Look at the vast expansion of undergraduate and graduate numbers over the same period in the already-developed world (when Michael was an undergraduate, 14 per cent of the cohort went to university in England; now it is close to 50 per cent, and England is by no means unusual). Look at the academic output much (but not all) of it high quality. 1 Davies

13 Of course, this rise and rise of the university has posed problems, particularly in finding the means to share the cost burden of expanding student numbers, but it would be easy to conclude that right now we have seen the realisation, the full flowering, of the 20th century concept of the university. Indeed, the rise of universities in the developing world, often based on this western paradigm, is the ultimate endorsement imitation is, after all, the sincerest form of flattery. The mountainside looks solid indeed, but there are changes under the surface. They are rather invisible, but they are unmistakable. An avalanche is coming. It s hard, of course, to say exactly when. It may be sooner than we think. Certainly there is no better time than now to seek to understand what lies ahead for higher education and to prepare. 8 IPPR An avalanche is coming: Higher education and the revolution ahead

14 1. UNDER THE SURFACE A combination of factors is likely to challenge the 20th-century university paradigm and shake it to the core. Indeed, the avalanche might sweep it away altogether. Consider the following factors. 1. The global economy is changing The combination of globalisation and technology is transforming the way the global economy works. Supply chains are being transformed. The ubiquity of knowledge and the close-to-zero cost of sharing it, create what Thomas L Friedman called the flat world, and the pace of innovation is accelerating. We ve seen extraordinary change in the past two decades but, as the old song puts it, You ain t seen nothing yet. Already, economic power is shifting east Pacific Asia s contribution to global GDP has risen from 9.1 per cent to 22.8 per cent over the past 50 years. 2 Already, the internet has changed every line of business even stonemasons in Britain buy their stone online from India to stay competitive. Already, physical products such as airline engines are sold not as one-off products but as services functioning engines constantly maintained for 15 years. Already big data means that businesses and customers can compare, refine and improve products on an almost-daily basis. But the revolution ahead will be more dramatic still. We ve seen with our own eyes a violin, with perfect pitch, that was 3D printed at Exeter University; a wallet at the MIT Media Lab that knows how much money you have in your bank account and gets progressively harder to open the more you spend. Wearable computing, such as Google Glasses and pulse monitoring watches, is already here. Three states in the US California, Nevada and Florida, if you want to avoid them have already made driverless cars legal. (Cabs might soon get a whole lot cheaper!) We haven t even mentioned the biotech revolution that is happening in parallel. As we argued in Oceans of Innovation, the prospects for education systems, at school level and in higher education, will be massively affected by the wider patterns of innovation in the global economy. These systems will have to develop means of effectively innovating themselves. These dramatic changes have two different, but related, 2 Barber, Donnelly and Rizvi 2012: 12 9

15 implications for universities. First, as in any other sector, they require a rethink of the business model. A sector which caters largely for young people, a generation that is now connected from birth, might be expected to be under greater pressure than most to change. Second, these changes have altered the nature and pattern of demand for skills and knowledge in the workforce: with every passing year, the demand for well-educated, imaginative, collaborative, confident people who take personal responsibility and will go the extra mile ( creative creators, as Tom Friedman calls them) increases. A few in each class of undergraduates will become the next generation of academics a noble calling and be well-prepared by their undergraduate and graduate classes. But what about the vast majority who will need to find something else, who will less and less often be filling existing jobs and more and more be creating jobs for themselves and others? At the same time, globalisation is not only bringing diversity to countries populations and especially to large cities, but also enhancing the number of potential students who shop globally for the best higher education offerings. Just as marketisation has transformed entire sectors in the past three decades, so it is now transforming higher education, not just within countries, but globally. This trend will accelerate as public funding for higher education around the world is reduced and replaced by private funding such as loans or direct payments. When Saad was choosing a university for himself, his search went across institutions in Pakistan, the US, UK, Canada, Australia and Singapore. The location was not relevant only the quality of learning, the opportunities offered and the extent of financial aid. In the 21st century, the student consumer is king. In particular, the global economy is steadily increasing the demand for Science, Technology, Engineering and Mathematics (STEM) subjects, and students who are well-grounded by the school system and well-motivated in these fields are an increasingly sought-after resource. Yale now recruits almost 10 per cent of its undergraduate class from overseas in most cases offering not just scholarships for education but also travel to and from home. Since graduates very often stay and live and work in the city where they graduated, these shifting global patterns of demand for higher education are becoming increasingly significant to the economic success of cities and countries. This adds simultaneously to the perceived importance of universities and to the competition between them. We also know from conversations with government ministers around the world that countries and cities are increasingly concerned about managing their diaspora and encouraging the return of their most sought-after talent. 10 IPPR An avalanche is coming: Higher education and the revolution ahead

16 In public policy, the global competition for the best students, particularly in STEM subjects, often collides with a countervailing tendency visible in the US, UK, Israel and Australia, for example towards restrictive immigration policy. Countries where blockheaded immigration policy wins out will inevitably discover the baleful economic consequences. Despite foreign nationals creating 450,000 jobs and $52 billion in revenue for America between 1995 and 2005, nearly one-third of employed foreigners want to leave the US due to its immigration policies. 3 Despite graduating from top universities and securing jobs in some of the best American companies, foreign graduates in 2008 had to go through an immigration lottery with a one-in-three chance of being allowed to stay in the country. The other two-thirds were told to leave and took their intellectual capital (and contributions to the economy) elsewhere. More recently, citystates such as Singapore and Hong Kong have been wooing these high-flyers with more easily obtainable visas and seed capital for those who want to start a new business. The EntrePass programme run in Singapore, for example, encourages entrepreneurs by rapidly providing residency and supporting students with ongoing mentorship and incubation. 4 Other nations would be wise to follow this lead. 2. The global economy is suffering As these transformational shifts occur, the global economy is also dealing with a trauma of the worst crisis in modern times, as the consequences of two decades of irrational exuberance slowly unwind. The problems are all the greater because, during the long boom, the vast majority of the enhanced wealth, particularly in the US, went to a relatively small economic elite, leaving not just the poor but also the middle class struggling to keep up. In the US, the share of households earning middle-class income has declined from 50 per cent in 1970 to 42 per cent in And the gap in wealth is widening every year between 1979 and 2007 the top 1 per cent grew their income by 275 per cent compared to just 40 per cent for the middle classes (the 20th-80th percentiles). 5 Additionally, as you can see in figure 1 6, median household income in the US has declined, particularly after the credit crisis. Those who lacked a good education struggled to make progress before the crash; after it, they were brutally exposed. The growth of the emerging economies of Brazil, Russia, India and China the BRIC economies and rising standards of education across much of the developing world are obviously major gains for humanity, but they pose a significant additional threat to undereducated youth in the developed world. 3 Wadhwa et al EntrePass US Congress 2011: 11 6 See Thomson Reuters Datastream 2012: https://forms.thomsonreuters.com/datastream/ 11

17 Figure 1 Stagnation of median household incomes shows the increased pressure on the middle class Source: Economic Policy Institute analysis of US Census Bureau Data. The graph indicates NBER recession. This has led to frighteningly high levels of youth employment (shown in figure 2) staggeringly around 50 per cent in Spain, and among African Caribbean young people in the UK as well as the growing phenomenon of graduate unemployment. Figure 2 European youth unemployment has increased dramatically in the past three years Source: Thomson Reuters Datastream, Eurostat Reuters graphic/scott Barber 5/2/2012 It is easy to dismiss this as a cyclical effect. While this may in part be true, it should not mask the more profound problem of the mismatch between what the emerging global labour market demands and what a university education all-too-often provides. In 2011 in the UK, 25 per cent of those who left university with a degree were unemployed (compared to just 20 per cent among school-leavers) and the US 12 IPPR An avalanche is coming: Higher education and the revolution ahead

18 had almost 300,000 masters degree holders dependent on food stamps. What is striking is that, at exactly the same time as there is high graduate unemployment (and/or underemployment), there are also employers with unfilled vacancies who can t find people with the requisite personal attributes or skills. A recent survey found that almost 45 per cent of employers struggle to find people with the right skills for entry-level positions, and 70 per cent blame this shortfall on lack of adequate training. 7 No wonder some graduates, and some business and political leaders, are beginning to question the value of higher education. A degree might not be all it is cracked up to be. President Lee of South Korea summed up this sentiment crisply as: Skip college and go to work The cost of higher education is increasing faster than inflation These questions of value are becoming sharper as the cost of getting a degree rises. This year, the National Center for Education Statistics in the US pointed out: Between 2000/01 and 2010/11, prices for undergraduate tuition, room and board at public institutions rose 42%, and prices at private, not-for-profit institutions rose 31% after adjustment for inflation. [our italics] According to the Wall Street Journal on 28 February 2013, total student debt in the US is up 51 per cent from and now totals nearly $1 trillion. Moreover, 35 per cent of students under 30 with debt are delinquent (90 days or more behind with their payments), compared to just 21 per cent in Similar trends are evident in other countries too. The cost pressures on public universities in England were a major reason why the British government created the new student fee regime in 2010 and introduced it in As Clayton Christensen and Henry Eyring point out in The Innovative University, this remorseless increase in cost is predominantly driven by the bigger-and-better tendency. 10 They may exaggerate in suggesting that, over time, each university is striving to become Harvard, but the basic point is surely undeniable. The problem from the point of view of the undergraduate student is that much of the cost base of a traditional university is irrelevant to their experience and sometimes as highly-paid expert research professors avoid undergraduate teaching responsibilities, for example detrimental. 7 Barton Yun Simon and Ensign Christensen and Eyring 2011: 82 13

19 Furthermore, the price charged to students, even once the cost base is accounted for, is not always responsive to the classic relationship of supply and demand. Indeed, thanks to the inadequacy of outcome measures for universities (unlike schools, for example), input measures tend to be seen as proxies for quality. Hence in the various university rankings, the lower the student:teacher ratio, the better the ranking. 11 In other words, additional cost is assumed to correlate with higher quality. This creates a self-fulfilling prophecy and therefore drives up cost. Moreover, regardless of cost, price is also often seen as an indicator of quality. When the new fee regime was introduced in the UK in 2012, for example, many universities chose to set their fees at the maximum of 9,000, not because of any real cost calculation, but because they feared that anything cut-price would be seen as low quality and that they might lose market share or damage their brand, or both. Both real costs and market logic remorselessly drive the price of a degree upwards. 4. Meanwhile, the value of a degree is falling Achieving a degree, measured in lifetime earnings, has significantly more value than completing high school, but it is not clear that this will continue for all time and all degrees. As figure 3 shows, the average earnings for US students with a bachelors degree fell 14.7 per cent between 2000 and 2012 despite a 72 per cent increase in cost. 12 In the UK, while graduates are less likely to be unemployed and the graduate premium, according to London Economics is holding up, much depends on the nature of the degree and employers often question the skills a degree provides. 13 Figure 3 The declining value for money of a college degree Source: College Board, U.S. Department of Education, Census Bureau, and Citi Research. Tuition and earnings were weighted in 2010 dollars; tuition and fees were enrolment-weighted. 11 Baty See 13 London Economics IPPR An avalanche is coming: Higher education and the revolution ahead

20 To some extent, this is the effect of supply and demand. The number of graduates in the world is increasing rapidly, partly due to the growing proportion of each age group going to university in developed countries, but much more due to exponential growth in the numbers going to university in emerging markets. By 2020, China alone will account for 29 per cent of all the university graduates in the world aged In absolute numbers, that will mean there will be as many Chinese graduates in that age group as in the entire US labour force. 14 To add to the questions, there is also strong evidence of grade inflation, with the number of graduates gaining first class honours in the UK having more than doubled in the past decade. In just four years, the number has increased by 45 per cent. 15 Even accepting some overall improvements in the school system and university teaching, these numbers are surprising and suggest that top honours are indeed being devalued. Combine these trends with the changing demands of the global labour market referred to earlier, and the questions about the likely value of a traditional degree seem at the very least worth asking. Whatever the answers, the fact that these questions are being asked at all adds to the pressure and may ultimately become another self-fulfilling prophecy. Moreover, when the value of a degree is broken down by subject and institution, it is already evident that some of them, while possibly intrinsically valuable to an individual, are in economic terms barely worth the paper they are written on. According to the Chronicle of Higher Education on 4 March 2013, the Boeing Company in 2008 began to rank colleges based on how well their graduates perform within the corporation; it plans to conduct the same evaluation again this year, says Richard D Stephens, senior vice president for human resources and management. 16 A recent study in the US showed a significant difference in the risk of unemployment among recent university graduates depending on their major. Those that majored in the liberal arts and non-technical subjects had some of the highest rates of unemployment (around 11 per cent), while those with more technical expertise had significantly lower rates. 17 Another study found similar results in average earnings by major. Engineering had the highest, at $75,000, while psychology, social work and education had the lowest, at $42, Reporting a recent survey from the National Association of College Employers, Forbes magazine reinforced this message. 19 Nine of the top 10 majors in terms of earning 14 OECD Harris Fischer Carnevale et al Carnevale et al Casserly

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